If it misses, NASA keeps rolling the dice with the shuttle one finally gets hit.
And the video was seen before reentry. Strangely, no one thought it was that serious. Which is crazy - KE is 1/2 mass * velocity squared. I don't care how light it is, if it hits at supersonic speed, you ought to be worried.
In the event, it wasn't until the accident was recreated on the ground, firing a similar piece of foam at a section of carbon-carbon leading edge wing structure, shattering it like a shotgun blast, that the light really came on. Supposedly, there were gasps of dismay and shock at how bad it was.
So in the case of B: that's OTL, sadly.
Well, it's somewhat logical. If I were looking it, green-field, I would assume the foam was going about the same speed as the shuttle when it peeled off. In that case, it shouldn't be going very fast, no more than a few tens of miles per hour, relative to the shuttle's wing when it strikes. Well, that's probably about the same as birdstrikes, and the foam mass is probably similar to large birds. I find it hard to believe that the wing wasn't engineered to be at least somewhat resistant to bird strikes. So you could go, okay, it shouldn't be that much of a danger--hey, the *engines* are probably more dangerous! Of course, that wasn't true, and I haven't looked at it in detail.
But I agree with you about option A (or rather, until something else nasty hits). No way the Shuttles are going to be living out their "extended" lifespans, I'm afraid (that is, the old projections that they could keep flying until 2030 or so).
@Cook: Well, Columbia was carrying an EDO pallet and Spacehab modules, so it does have a longer than normal duration, and if they decide to launch a rescue they will certainly be trying to maximize that, as well. Still, very very marginal.